Short Position - Will rentals drop in Suria KLCC?


  • Corporate News
  • Saturday, 09 May 2020

Will rentals drop in Suria KLCC?

A common theme in the notes of companies quarterly results is how the movement control order (MCO) and Covid-19 pandemic is affecting their business.

In this respect, if anybody had wanted to know if rental rates in Suria KLCC are affected and what mitigating measures are being taken by the company, they would not have had a clue based on the results of KLCC Property Holdings Bhd (KLCCP).

In its first quarter results released earlier this week, KLCCP stated that the hotel operations, which essentially is Mandarin Oriental, was affected by the MCO, which kicked in on March 18. The hotel division chalked up a loss while the retail and office spaces continued to show growth in profits.

The hotel was closed to new guests and continued to serve only long-staying guests. As for Suria KLCC, which is the premier mall in the country, it was also closed with the exception of pharmacies, supermarkets and banks.

The mainstay of KLCCP is the rental from its office block, which continues to provide it with a stable income.

The company stated that it expected the Covid-19 pandemic to impact its hotel and retail business for the rest of the year and management would be taking mitigating action.

However, there are no details as to measures they were planning.

Most importantly, there was not an inkling of idea if rental rates in Suria KLCC, which according to reports can be anywhere between RM25 and RM100 per sq ft per month, will be reduced.

In comparison, IGB Reit Bhd in its latest quarterly report, stated that it is looking at rental support programme on a case-by-case basis to mitigate the challenges faced by tenants.

In its action plan, the company, which operates the Mid-Valley Megamall and The Gardens, stated that it was taking into consideration several factors such as business tolerance and risk of tenant sustainability when providing the rental support.

IGB Reit stated that its results would be impacted by the rental support programme and possible impairment in the value of its assets from the prolonged MCO.

From IGB’s statement, its obvious retail rental rates in its malls, which can be anywhere between RM20 and RM45 per sq ft, will be coming down.

Taking a new direction

PALM oil companies have had it good for years. The golden crop has brought fortune and fame to many entrepreneurs over the decades with companies diversifying into that segment reaping huge returns along the way.

While the future for palm oil companies is still intact, some have started to veer away from solely growing that side of the business.

Abundance of supply plus negative connotations in the western world on the product have seen the price of the commodity come under pressure in recent times.

A cash crop is still a cash crop and the ongoing Covid-19 crisis has shown that food security and that side of the business will be part of the transformation that will see other segments of business change as the world adapts going forward.

For FGV Holdings Bhd, the planter recently moved into dairy farming.

It is a small part of their business now but with self-sufficiency of milk in Malaysia still at a low percentage, at best in the teens now – there is ample room for import substitution in that business and revenue to be reaped.

Now it has signed a joint venture with its India partner where the subsidiary of FGV will take a 70% stake in the business of participating directly in the food business in India.

While palm oil will still remain the mainstay of FGV’s operations in India, the recent deals show the new direction charted by the company.

There is also the possibility of FGV getting into the importation of food crops from India into Malaysia as a result of the deal.

FGV said it was 82% dependent on palm oil and wants to look at integrated farming and renewables as a new business pillar.

There is money to be made in the food crop business and look no further than Thailand’s largest company CP Group.

Its revenues are huge and it recently bought

Who should pay for testing

A number of industry associations have appealed to the government for help in getting their foreign workers tested for Covid-19.

This includes the electronics, construction and property development industries.

At least two million foreign workers are employed in those industries.

But is it fair for the entire testing bill to be borne by the government?

After all, the government, whose finances are already stretched, has agreed to fork out billions of ringgit as part of stimulus packages to boost the economy.

Furthermore, the government is bearing the brunt of the quarantine and treatment costs related to Covid-19.

These industries are not poor and the workers contribute to their coffers which run into billions of ringgit. As such, shouldn’t the industries be bearing some of the testing costs, if not all of it.

A leaf can be drawn from Jeff Bezos, Amazon’s founder.

He recently said the company’s shareholders should “take a seat” because the company planned to spend US$4bil or more in the next three months on coronavirus-related expenses.

This includes investments in personal protective equipment, enhanced cleaning of facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop their own Covid-19 testing capabilities.

The US$4bil spend will be equal to Amazon’s entire profit for the next quarter.

Its shares sank on the news. But the move shows the kind of corporate responsibility and vision that should be emulated by all profit making companies in these difficult times.

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KLCC Suria , Palm oil , FGV , Tesco , pay , testing ,

   

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